How Rishi Sunak could save workers thousands in taxes and solve the cost of living crisis

Chancellor Rishi Sunak could save struggling families thousands of pounds by cutting taxes to stimulate the economy and cushion the effects of rising prices.

The government is looking for ways to reduce the tax burden as families battle skyrocketing inflation, which has hit a 40-year high of 9%.

Sunak is reportedly making plans to increase discounts on heating bills for low-income households and make tax cuts in the fall. This could be financed by a single windfall tax on oil and gas companies, which ministers are considering and could raise cash to offset the cost-of-living crisis.

Taken together, these policies could save households hundreds of pounds a year, although critics say windfall taxes are anti-business and will hurt the broader economy. Telegraph Money takes a look at what options are on the table and what they would mean for your money.

Accelerate the 1 pence income tax reduction

In his spring statement, Mr. Sunak announced that he would reduce the base rate income tax by 1 cent per pound from 2024. As the cost of living crisis deepens, this tax could accelerate.

Sarah Coles of Hargreaves Lansdown, a fund store, said that for someone earning £40,000 a year, this tax cut would mean a saving of £274.30. This would be equivalent to a salary increase of 0.69%.

Employees in this income bracket would see the highest proportional benefits because they have most of their income concentrated in the base rate tax bracket.

A person earning £80,000 would pay £377 a year less in income tax, which equates to a 0.47 per cent pay rise. A person earning £16,000 a year would save just £34.30, or 0.21% of her income.

Scrap the increase in National Insurance

In April, the Government introduced an increase of 1.25 percentage points in National Insurance rates. Sunak came under heavy pressure earlier in the year to reverse this, but has so far refused to do so.

However, if the chancellor were to scrap this unpopular tax increase, the benefits would far outweigh the income tax cut.

Coles calculated that a person earning £40,000 a year would save £352. Your National Insurance bill would drop from £3,724 to £3,372. This would be equivalent to a salary increase of 0.9 percent.

A person earning £80,000 would see an even bigger increase of 1.1 per cent and save £851 a year.

But the changes would do little to help low-income households. A person earning £16,000 a year would have annual savings of just £52.

These calculations assume that the government goes ahead with its plans to raise the National Insurance threshold in July as promised.

Increases the warm housing discount

Sunak is expected to announce a package of measures in July to help households manage rising energy bills.

As part of this, it is considering plans to make a one-time increase to the warm homes discount scheme, which is a discount on your energy bill. The discount, currently expected to be £150 this winter, could rise to as much as £600.

This measure would be a substantial boost to three million of the poorest households in England and Wales. The discount is available to low-income households and those receiving the guarantee credit element of the pension credit.

A person earning £16,000 could save an additional £450.

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